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Subsidies and State Aid Law

Date: 
Tuesday, 14 April 2020

Experts and governments agree that the corona pandemic will have a massive impact on the economy. In addition to the distortions in international supply chains that have been foreseeable for some time, measures to prevent the spread of Covid-19 in particular will have a strong negative impact on the economy as a whole and from the perspective of the companies affected.

The German government wants to take countermeasures at an early stage and has put together a massive aid package of EUR 38 billion to support the economy. At the same time, EU state aid law sets limits on state intervention to protect the internal market from distortions of competition. This briefing provides a brief overview of the measures known so far to ease the burden on companies and their likely implications under state aid law.

Overview

Questions and answers:

What measures has the government planned to ease the burden?

In the case of measures imposed under the Epidemics Act, such as plant closures and traffic restrictions, there is always a right to compensation. However, this has been considerably undermined by the Covid-19 Measures Act and is not applicable, in particular, to prohibitions on entering commercial transactions ordered by decree. You will find more details in our briefing on public law.

To combat the economic consequences of the corona pandemic, the German government is relying on a bundle of different measures:

  • EUR 2 billion in short-time working allowances and deferral and installment payment of social security contributions, see our briefing on labor law;
  • Deferral and facilitated reduction of KöSt- and ESt-prepayments, see our briefing on tax law. Furthermore, the benefits received for crisis management are tax-exempt;
  • The extension of federal guarantees by AWS and ÖHT in the context of SME promotion (volume: EUR 1.25 billion and 625 million respectively) and the establishment of a hardship fund for micro enterprises administered by WKÖ (volume: EUR 2 billion);
  • Financial support by the Covid-19 Finanzierungsagentur des Bundes GmbH (COFAG) to maintain the solvency and bridge liquidity problems of companies. A volume of up to EUR 15 billion is earmarked for capital and liquidity support measures by COFAG. The measures include
    • Federal guarantees for working capital loans amounting to 90% of the loan amount;
    • Fixed cost subsidies for companies that have suffered sales losses of at least 40 % during the crisis. Eligible are business premises rents, insurance premiums, interest expenses, licence costs, operational­ contractual payment obligations, and payments for electricity, gas and telecommunications.  
  • There are also sectoral bridge financing offers, see our briefing on financing.

More detailed information on the support measures of COFAG as well as on SME support and the Hardship Fund can be found below in Section 5, and at the end of this article you will also find links to other support instruments. The concrete form of the funding to be granted by COFAG and the Covid-19 crisis management fund is still to be regulated by ordinances of the Federal Ministry of Finance.

Do these measures constitute State Aid?

Not all of the measures adopted are subject to State aid rules. According to the case law of the Court of Justice (RS Asteris), compensation for damage caused by national authorities to private individuals does not constitute aid. This is likely to be the case in particular for compensation payments under the Epidemic Law.

Nor is there aid if the aid measure is of a general nature. Only measures which selectively favour certain undertakings or the production of certain goods are covered by the concept of aid. The more generous tax and social security deferral rules are generally applicable.

However, support measures for individual sectors and companies, for example through ABBAG or the Covid-19 crisis management fund, are likely to be subject to EU state aid law. Such measures must therefore be approved by the European Commission before they are granted.

What are the guidelines of the European Commission?

If a measure constitutes State aid, it is subject to examination by the European Commission. To this end, it must be notified to the Commission by the Member State and may not be implemented until it has been approved.

The notification requirement does not apply in particular to aid which is structured in accordance with the General Block Exemption Regulation EUR No 651/2014 and de minimis aid as defined by Regulation (EU) 1407/2013. Aid is considered de minimis if the total amount of aid granted to an enterprise by a Member State does not exceed EUR 200,000 in three fiscal years. It should be noted, however, that if several subsidies are cumulated, the upper limit of the de minimis exception could be exceeded. Therefore, the applicant must declare the subsidies already received when submitting future applications for subsidies.

In the absence of an exemption from the obligation to notify, the initial assessment by the Commission is normally made within two months of notification by the Member State. During the crisis, however, the Commission has shown flexibility and has already approved more than 20 notified aid schemes in a very short time.

One of the approved aid schemes - a compensation scheme by the Danish government for organisers of cancelled major events - was considered by the Commission to be aid to make good the damage caused by natural disasters or exceptional occurrences. Such aid is considered compatible with the internal market under Article 107(2)(b) TFEU. However, a form published by the Commission in order to specify the requirements of this provision suggests that this legal basis should only be applicable if there is a direct causal link between the damage suffered by Covid-19 and the aid.

The Temporary Framework for State aid to support the economy will become more relevant in practice in the light of the COVID 19 outbreak. This is set out in the Commission Communication "Temporary framework for State aid to support the economy in response to the current COVID-19 outbreak" of 19 March 2020 (C(2020) 1863 final) as amended by the Commission Communication "Modification of the Temporary Framework for State aid to support the economy in response to the current COVID-19 outbreak" of 2.4.2020 (C(2020) 2215 final). The Temporary Framework builds on the experience of the financial crisis, where the Commission had also adopted temporary schemes from 2008 onwards. It is based on Article 107 (3) lit b TFEU, according to which aid to remedy a serious disturbance in the economy of Member States may be considered compatible with the internal market.

Under the Temporary Framework, the Commission will consider the following measures to be compatible with the internal market and, following notification by the Member States, will approve them rapidly

  • Aid in the form of direct grants, repayable advances or tax benefits to cover urgent liquidity needs, up to EUR 800 000 per undertaking;
  • aid in the form of subsidised guarantees for investment or working capital loans. The minimum fee for the guarantee depends on the size of the company and the duration of the loan and should be between 25 and 200 basis points. If the duration is longer, the guarantee premium will increase progressively, although Member States may derogate from this rule. Furthermore, the amount of guarantees granted will be limited to (i) twice the wage bill including social security contributions or (ii) 25 % of the company³s turnover. In duly justified cases, guarantees may also be granted for higher liquidity needs on the basis of a liquidity plan. However, the guarantees must be limited to a maximum of 90 % of the loan amount. This cover limit is reduced to 35 % if losses are first allocated to the state and only then to the banks;
  • aid in the form of loans (public or subsidised private) at subsidised interest rates. A minimum interest rate of 25 to 200 basis points above the base rate of 1 January 2020, depending on the size of the company and the term of the loan, should also apply here. The amount is also subject to the restrictions described above for guarantees depending on the company's wage bill or turnover;
  • Clarification that aid granted to the real economy through banks is not considered aid to the banks themselves;
  • Deferral of taxes and social security contributions and aid to reduce staff costs in order to avoid redundancies. This applies not only to generally applicable regulations that do not constitute aid from the outset, but also to measures that are restricted to companies that are particularly affected by Covid-19.
  • Exceptions to the general prohibition on insuring marketable risks under the official export credit insurance scheme. Member States are thus enabled to offer short-term export credit insurance; and
  • Aid to combat Covid-19, specifically applicable to (i) research and development, (ii) construction and expansion of development and testing facilities and (iii) the manufacture of products to combat Covid-19, such as vaccines, medical devices, protective material or disinfectants

What does this mean for companies?

If no exemption from the notification requirement applies, aid may only be paid out after approval by the European Commission. However, the Commission is aware of the urgency of the situation. The aid schemes notified by the Member States in connection with Covid-19 have so far been approved by the Commission within a few days as a rule.

The Temporary Framework is of great importance for the design of the funding instruments. The Member States are not obliged to design their support instruments in accordance with the Temporary Framework. However, since a longer examination by the Commission is likely to be required in the event of divergent rules, the Member States will probably design their support instruments in accordance with the Temporary Framework and notify them to the Commission as soon as possible. In case of agreement, approval by the Commission should be rapid.

Moreover, the temporary framework is intended to allow aid only to firms that are in difficulty after 31 December 2019. In this way, the Commission wants to avoid that Member States use aid to relieve companies of burdens that are not related to the crisis triggered by Covid-19. A similar distinction was already made by the Commission during the financial crisis, when aid to "fundamentally sound" banks was approved much more quickly than aid to "distressed" banks.

Rescue and restructuring aid to ailing firms is not excluded either. However, the Commission authorises such aid only after a full examination of the restructuring plan to be submitted as part of the procedure. As a condition for approval, the Commission also requires that the company and its shareholders or creditors make a significant contribution to the restructuring costs and that accompanying measures are taken to limit distortions of competition (normally these are structural measures such as divestiture commitments).

What are the requirements and conditions for grants in detail?

Corona relief fund

By far the largest volume, EUR 15 billion, is accounted for by the Corona relief fund managed by Covid-19 Finanzierungsagentur des Bundes GmbH ("COFAG"). This fund is a general support instrument that is not restricted to specific sectors or companies of a certain size. The Corona relief fund finances three instruments to cover the liquidity needs of companies, namely (i) guarantees, (ii) direct loans and (iii) direct subsidies (fixed cost or operating subsidies).. Guarantee applications should be possible from 8.4.2020; applications for fixed cost subsidies from 15 April 2020.

The guidelines for COFAG financing issued by ordinance of the BMF came into force on 9 April 2020. With regard to direct subsidies, another guideline is still outstanding which will regulate the details. The financial measures in the form of direct subsidies, guarantees and direct loans under the guidelines will be carried out in accordance with the requirements of the European Commission. For the time being, it will be possible to apply for financial measures under the guidelines until 31 December 2020.

Eligible beneficiaries are those who fulfil the following requirements (point 3 of the guidelines):

  • The company has its headquarters or a permanent establishment in Austria;
  • A substantial part of the operational activities are carried out in Austria;
  • The financial sector, in particular credit institutions, insurance companies, investment service providers and pension funds, is excluded;
  • Financial measures will not be granted to companies that were already in difficulty on 31 December 2019. From the point of view of state aid law, a company is in difficulty in particular if more than half of its share capital has disappeared as a result of accumulated losses.

In particular, COFAG has the following financial measures at its disposal:

  • assumption of liabilities ("guarantees");
  • granting direct loans and bridging loans ("direct loans"); and
  • the granting of direct and repayable subsidies ("direct subsidies"), although this will be further specified in a separate guideline.

The purpose of the financial measures is to maintain the solvency and bridge the liquidity difficulties of enterprises caused by the Covidcrisis. Guarantees and direct loans can be used for most business-related expenses, in particular for payments such as rents, lease payments, wages and salaries, taxes, levies and charges, payments for services essential to the business and payments for goods necessary to keep the business running at a minimum level, repayment of advance payments and insurance premiums for insurance essential to the business.

On the other hand, the financial measures should not be used to repay existing financing (debt rescheduling), with the exception of individual loan instalments or interest payments on their contractually agreed due dates when the Covid-19 Act comes into force. By contrast, it may not be used for purposes of prepayment, or in case of acceleration or repayment of bullet loans.

Before granting a financial measure, alternative financing options must be considered. These include, for example

  • Reducing the purchase of goods to a minimum necessary for the maintenance of the business activity as well as recourse to available liquidity reserves and proceeds from rapidly realisable assets;
  • recourse to other legal, official or executive measures of the Federal Government (tax deferrals, short-time work, grants from other public institutions) or other private-sector measures (e.g. insurance)
  • Financial measures by the beneficial owner or shareholder. For this reason, the company is subject to special obligations with regard to dividend policy and fee structure in the event of recourse (see below).

The amount of the financial measures depends on the uncovered payment obligations of the company. In a first step, the period under consideration is a period from 1 March 2020 to 30 September 2020. The exact or a longer period under consideration must be justified.

The maximum amount must comply with the specifications of the European Commission. For guarantees and loans, it is (i) twice the total wage bill including social security contributions or (ii) 25 % of the company's turnover, as stated above. For direct subsidies a maximum amount of EUR 800,000 applies according to the specifications of the European Commission.

The duration of the financial measures must be agreed on a case-by-case basis. In order to determine the period under consideration, the duration of the economic effects on the company expected at the time the financial measure was granted as a result of the spread of Covid-19, which led to the liquidity problems, must be taken into account. In a first step, an observation period from 1 March 2020 to 30 September 2020 will be used. The fees and interest are also calculated on a case-by-case basis and are determined in accordance with above-mentioned requirements of the European Commission.

The applicant is subject to the following obligations, among others:

  • Particular attention must be paid to preserve jobs;
  • Obligation to make every effort not to pay the owner of the company, its executives, employees and essential vicarious agents inappropriate remuneration. In particular, bonuses for members of the Management Board or managing directors for the current financial year are limited to a maximum of 50 % of the previous year's bonus;
  • In the period from 16 March 2020 to 16 March 2021 a ban on the distribution of dividends and profits. For the remaining period, there is an obligation to pursue a moderate dividend and profit distribution policy. Furthermore, no reserves may be released to increase the balance sheet profit and the liquidity received from the financial measure may not be used (i) to pay profit distributions, (ii) to buy back own shares and (iii) to pay bonuses to members of the Management Board or managing directors.

Applications must be submitted via the credit institution which grants the underlying loan to the company. The application must be reasoned and should include the following information:

  1. that the liquidity requirement is due to economic effects caused by the spread of Covid-19;
  2. which payment obligations are to be covered by the financial measure for which period under consideration;
  3. that the alternative financing options presented above have been used to the extent economically reasonable;
  4. what other public support the applicant is receiving in respect of the economic effects resulting from the spread of Covid-19; and
  5. how long it will take until the undertaking will once again be able to continue operating without the financial measure granted or to repay it, after the immediate economic impact of the spread of COVID-19 has come to an end.

Depending on the size of the undertaking, the documents may be liquidity plans, short and medium-term plans, repayment schedules or a written statement by the enterprise from which these circumstances can be deduced.

Only recently, the Ministry of Finance announced significantly more comprehensive non-repayable fixed cost subsidies of up to EUR 90 million per undertaking. These grants are not yet covered by the guidelines, which only concern repayable direct grants which are subject to the European Commission's EUR 800,000 cap. Measures going beyond the already approved guideline would require further approval by the European Commission (either generally as an aid scheme, or in individual cases).

Support for SMEs through AWS and ÖHT

According to the SME Promotion Act, Austria Wirtschaftsservice (AWS) or, for tourism enterprises, the Österreichische Hotel- und Tourismusbank Gesellschaft m.b.H. (ÖHT) can support small and medium-sized enterprises by means of grants and assumption of liability. In the course of the Corona crisis, the legislator has considerably expanded the possibilities for subsidies by AWS and ÖHT:

Support for SMEs outside the tourism and leisure industry

The assumption of an AWS guarantee for bridging loans or loan repayments is carried out in a fast-track procedure and, due to the assumption of liability by the Federal Government, enables a loan to be granted which would not be possible without the assumption of liability (e.g. due to the absence of the possibility of providing security).

Conditions for AWS guarantees are foreseen:

  • The applicant for funding is an SME or freelancer. Excluded are:
    • Companies in the tourism and leisure industry;
    • Companies in the banking, insurance or other financing sectors;
    • Companies in the real estate sector (excluding real estate brokers and property management companies);
    • primary production of agricultural products and fisheries;
    • Associations
  • Start-up of business activity before the onset of the crisis (i.e. 11 March 2020);
  • No need for reorganisation (equity ratio above 8%, notional debt repayment period of less than 15 years) or existence of the conditions for opening insolvency proceedings

The guarantees are subject to the following conditions:

  • Eligible for guarantee are financing for current (personnel, material) costs as well as for the hours of existing credit lines;
  • Coverage of 80 % of the loan amount (the German government announced an increase to 90 % on 3 April 2020). The maximum loan amount is EUR 2.5 million per SME;
  • Duration: Maximum 5 years;
  • Guarantee fee from 0.3 % p.a. (depending on the risk); as far as permissible under state aid law, this should normally not apply.

The application is made via the house bank, and aws decides on the granting of the guarantee.

Support for enterprises in the tourism and leisure industry

Different rules apply to companies in the tourism and leisure industry. As prerequisites for ÖHT guarantees apply here:

  • The applicant for funding is an SME in the tourism and leisure industry:
    • Permanent establishment in Austria;
    • Membership in the tourism and leisure industry section of the WKO;
  • In installer/operator constellations, the installer is also eligible for funding;
  • No need for reorganisation; no pending insolvency or execution proceedings;
  • Competitiveness, creditworthiness and credit standing of the applicant for funding;
  • Decline in sales of at least 15% compared to the previous year.

The guarantees are subject to the following conditions:

  • The raising of debt capital to compensate for liquidity bottlenecks caused by short-term declines in sales revenues as a result of the crisis is eligible for guarantee;
  • Coverage of 80 % of the loan amount (the German government announced an increase to 9 0% on 3 April 2020). The maximum loan amount is EUR 0.5 million per SME;
  • Duration: Maximum 3 years;
  • The liability commission in the amount of 0.8% and the one-time processing fee of ÖHT in the amount of 1% are not applicable.

Here too, the application is made via the house bank.

In addition, there is the possibility of the federal states assuming the interest for bridging loans (more information here) as well as a suspension of the repayment of ÖHT loans in 2020.

Hardship funds

The hardship fund administered by the WKO supports one-person entrepreneurs and micro-enterprises that suffer a drop in sales as a result of the Covid-19 measures. The grant is a one-off payment and does not have to be repaid. Applications are currently possible until the end of 2020 or until the fund is exhausted.

The following conditions apply to support from the hardship fund:

  • Eligible for application are one-person entrepreneurs, micro-entrepreneurs (max. 10 employees and EUR 2 million turnover/balance sheet total), working partners (GSVG/FSVG compulsorily insured), new self-employed persons, freelancers and freelancers
    • Chamber membership is not required
    • Exceptions are farmers and foresters (for these there is a possibility to apply at Agrarmarkt Austria), NGOs and private room rentals
  • Registered office or permanent establishment in Austria;
  • Economic impact of Covid-19, alternatively as a result of
    • Revenue slump of at least 50 % compared to the previous year,
    • Concerned by a ban on entering the premises,
    • impossibility of covering running costs (no information on private assets required);
  • No entitlement to benefits from private or professional insurance to cover Covid-19 effects;
  • No further cash payments from local authorities on the basis of Covid-19 (combination with state guarantees or short-time working is possible, as is a switch to the Corona relief fund, whereby subsidies drawn from the hardship fund must be taken into account);
  • No pending insolvency proceedings or need for reorganisation.

The following additional conditions also apply to emergency aid granted in Phase 1 (until 11 April 2020):

  • Company foundation until 31 December 2019;
  • Compulsory health insurance (GSVG/FSVG/ASVG) based on income from self-employment of at least 5,527.92 p.a. (negligibility threshold);
  • Income before taxes and social security contributions in the last financial year of max EUR 60,144 (80 % of the maximum contribution basis);
  • Ancillary income up to the marginal income threshold of EUR 460.66 per month (e.g. from renting and leasing)
  • No multiple insurance in the health insurance or pension insurance.

How high is the subsidy from the hardship fund?

Phase 1 - Emergency aid:

  • Net income under EUR 6,000 per year: subsidy of EUR 500;
  • Net income above EUR 6,000 per year: subsidy of EUR 1,000;
  • Applicants without a tax assessment will receive a grant of EUR 500.  

Phase 2 is currently still being prepared by the Federal Government

What else do I have to consider?

All documents relating to the grant must be kept for ten years from the end of the grant (award of the grant, end of the guarantee period). The applicant is also obliged to provide information to the funding agency and to allow access to the books.

Your contact persons:

Bernhard Müller
Head of the Public Law Practice Group
T +43-1-533 4795-57
bernhard.mueller@dorda.at

Heinrich Kühnert
Head of the Practice Group Antitrust and Regulatory Law
T +43-1-533 4795-35
heinrich.kuehnert@dorda.at

Links to funding instruments

WKÖ information for companies (very comprehensive, with information on emergency measures, direct loans, social security and tax deferrals as well as further links):
https://www.wko.at/service/faq-coronavirus-infos.html#heading_Kompensation   

Laws bridging guarantee in connection with the "coronavirus crisis
https://www.aws.at/aws-ueberbrueckungsgarantien/?ref=topnews

TourismusBank - Coronavirus package of measures for tourism:
https://www.oeht.at/produkte/coronavirus-massnahmenpaket-fuer-den-tourismus/

BMF – The Corona aid package (with details on the Corona Aid Fund administered by COFAG):
https://www.bmf.gv.at/public/top-themen/corona-hilfspaket-faq.html

AMS - Information about the Covid-19 short-time work model:
https://www.ams.at/unternehmen/personalsicherung-und-fruehwarnsystem/informationen-unternehmen-coronavirus-

ÖGK - Measures taken by the ÖGK to ensure the liquidity of holdings in connection with coronavirus:
https://www.gesundheitskasse.at/cdscontent/?contentid=10007.857779ortal=oegkportaliewmode=content

FFG Emergency Call for research on Covid-19 (with links to tender guidelines, directives etc.): 
https://www.ffg.at/ausschreibung/emergencycall-covid-19

FWF (Fund for the Promotion of Scientific Research) - FAQ in connection with existing funding programmes (e.g. extension of submission deadlines):
https://www.fwf.ac.at/de/forschungsfoerderung/faq/faq-zu-corona/

Wirtschaftskammer NÖ- Overview of the support possibilities (suspension of the basic levy requirement, subsidy from the WKNÖ-Existensicherungsfonds, liquidity check by the WKNÖ support service, Land NÖ-Finanzierungshilfe, various payment facilities, financing discussions with the bank):
https://www.wko.at/service/noe/Hilfspaket-aufgrund-des-Corona-Virus-.html

riz-up, Die Gründer-Agentur des Landes Niederösterreich (Summary of contact organisations & relevant links): 
https://www.riz-up.at/home/coronavirus/

NÖBEG - Support package for Lower Austrian companies:
https://www.noebeg.at/leistung/unterstuetzungspaket-fuer-noe-unternehmen-coronavirus/

WK Vienna Grants for small businesses - support from the emergency fund (including links to further support for entrepreneurs):
https://www.wko.at/service/w/corona-hilfe-wiener-kleinbetriebe.html (with further links to information sheet, funding guidelines and funding application form concerning this special funding)

City of Vienna - Information for companies:
https://coronavirus.wien.gv.at/site/wirtschaft/

WKBG (Wiener Kreditbürgschafts- und Beteiligungsbank) - bridging loans for SMEs:
https://www.wkbg.at/

Various (planned) support measures of the City of Vienna (e.g. platform for businesses that offer services, fees for public houses, promotion campaign for home offices):
https://coronavirus.wien.gv.at/site/weitere-unterstuetzungsmassnahmen-der-stadt-geplant/

The following announcements have been made for Upper Austria to date:
https://www.land-oberoesterreich.gv.at/232240.htm
https://www.land-oberoesterreich.gv.at/231988.htm



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